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[ Batangas ] Telcos not exempt from realty taxes

By Dona Pazzibugan

Philippine Daily Inquirer

First Posted 19:42:00 12/27/2008


MANILA, Philippines -- Telecommunications companies owe realty taxes for the buildings and all other real estate properties they use for their business operations all over the country, the Supreme Court has ruled.


In a unanimous decision, the high court rejected the appeal of Digital Telecommunications Philippines Inc. (Digitel) and ordered the firm to pay realty taxes, including interest and penalties, to Batangas City.

The decision, which was handed out last December 11, was penned by Associate Justice Antonio Carpio.


The Supreme Court upheld the decision of the Batangas City Regional Trial Court Branch 8 in May 2002 that Digitel, under its legislative franchise, was not exempt from paying real property taxes assessed by the Batangas City government.


The trial court said Digitel owed the Batangas City government P4.62 million in realty taxes as of January 2000 and should pay interest and penalties since then.


Digitel acquired a 25-year franchise on February 1994 to operate a telecommunications system throughout the country.


The firm put up telecommunications facilities in Batangas City in 1997, and at the same time claimed it was exempted from paying real property tax under Section 5 of its franchise under Republic Act 7678.


The provision states that Digitel “shall be liable to pay the same taxes on its real estate, buildings, and personal property exclusive of this franchise as other persons or corporations are now or hereafter may be required by law to pay.”


Digitel claimed that under its legislative franchise, only the real properties not used for their telecommunications business are subject to realty tax.


The Batangas City government meanwhile refused to issue the firm a mayor’s permit to operate and in 1999, threatened to close down Digitel’s operations in the city until it pays its realty tax obligations.

Shortly after this, Digitel went to court to ask for an injunction against a closure order by the Batangas City government, paid realty taxes amounting to P2 million -- although under protest -- so it can continue its business.

Digitel originally won a favorable ruling from the Batangas City RTC Branch 3, but when the Batangas City government appealed, the case was raffled to the RTC Branch 8.

In its ruling, the Supreme Court said “Section 5 of RA 7678 imposes taxes and does not exempt from realty tax.”

It said the provision is found in almost all legislative franchises for telecommunications firms in the country, such as those for the Philippine Long Distance Telephone Company, Smart Information Technologies, Inc. and Globe Telecom.

“Since 1905, no telecommunications company has claimed exemption from realty tax based on the phrase ‘exclusive of this franchise,’ until (Digitel) filed the present case on 3 July 1999,” the high court said.

“We rule that the phrase ‘exclusive of this franchise’ simply means that (Digitel’s) franchise shall not be subject to the taxes imposed in the first sentence of Section 5,” it added.

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